Retrain Your Mind

Start Thinking in Probabilities to Stop the Emotional Pain of Trading

Posted Saturday, October 27, 2018 by
Rowan Crosby • 2 min read

The moment you start thinking you know what the market is going to do next is the moment you start losing the trading battle.

This might sound counterintuitive, but the reality is that we simply can’t know what the market will do next. If we think for a moment what the market is, there are simply too many external factors and individual traders taking action in any given moment to truly say with any certainty that we know what is going to happen next. One trader taking one action at one moment can throw off the post perfect technical setup that we’ve come across.

It’s for that reason that to be successful as a trader we have to reprogram our brains to think in probabilities.

The best traders I know, who are pure intraday traders, have win rates of around 55%. What is that telling us about trading?

If the very best day traders can predict a winner only 55% of the time, then what hope is there for a new developing trader?

The reality is that when we start trading we are wanting to find winning trades for a number of reasons.

  • We need to be right
  • We want to make money
  • We have some degree of our self-worth tied up with making winning trades

It is all of these reasons that are holding us back from being successful. You see the market is and always will be random. No one moment is connected to the next.

If we associate being right with our success then, if are attaching too much weight on the outcome of our trades. If our trade doesn’t go our way, then we feel an emotional response to the result. We feel pain, despair, disappointment and hurt.

Think about the times when you simply sit and observe the market without taking any trades. It’s far easier to identify moves in prices. When we have something at risk, our brains start to get clouded by not just the factors impacting the trade, but also we are associating with the outcome.

The only way around this is to start thinking in probabilities. Identify our risk/reward that we are able to accept and then put on the trade, knowing full well that the outcome is random.

We need to convince our brains that we do in fact have an edge, but the outcome of the trade is random. All we can ultimately control in the short term is our risk.

Start to remove the association of success with having a winning trade. Focus on what you can control such as your preparation, planning, focus and risk control.

Then every time you enter a trade remind your analytical brain that this is simply a 50/50 proposition and the outcome is unknown. That process will help your emotional brain remove any attachment and weight on the outcome.

Now, this is a process that will take time, but it might be the difference in your success. Even more so than studying and analysing all the factors that impact the market.

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